The looming release of Petroleo Brasileiro Petrobras SA (ADR)(NYSE:PBR)’s financials and also a local bond sale from Argentina are the two main factors that resulted in price action on Tuesday. These factors converted a quiet session witnessed by Latin American credits.
The Brazilian oil firm said that it would announce its audited FY2014 results on Wednesday, offering extended support to bond prices. The bonds of Petroleo were closing off high levels but spreads were seen to be getting tighter. In fact the spreads of 2024s were being quoted at 450bp-440bp, extremely tighter on the day by 5bps.
The price moments in Petroleo bonds were led by hopes that the financials will reduce some of the severe concerns related with Brazilian credit and pave the way for issuance from a nation that has not recorded one cross border bond in 2015.
The market will be concentrated on the size of probable write-downs. Also, the focus will be on the firm manages the report of financial numbers. One of the trader said that all the things are priced in and therefore, only when Petroleo will report better than expected financials then only there will be some significant movements. In absence of strong results, the price momentum will trade sideways.
The decline from a corruption probe at Petroleo and Brazil’s declining growth are also anticipated to linger and adversely impact the nation’s corporate credit space, leading to higher volatility in the future period.
In a report, Moody’s recorded that Brazil had left behind Russia as the nation with the greatest probable fallen angels, with numerous credits from the South American nation edging on the junk territory. These include Bandeirante Energia, ESCELA, AES Tiete, as well as construction company Construtora Noberto Odebrecht. Also, Argentina debt underperformed after the government said it intended to liquidate up to US$500m of Bonar 2024s.